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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number 1-4629
GOLDEN WEST FINANCIAL CORPORATION
Incorporated Pursuant to the Laws of Delaware State
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IRS - Employer Identification No. 95-2080059
1901 Harrison Street, Oakland, California 94612
(510) 446-3420
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of the registrant's common stock as of July 31,
2002:
Common Stock -- 154,556,427 shares.
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GOLDEN WEST FINANCIAL CORPORATION
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Financial Condition -
June 30, 2002 and 2001 and December 31, 2001..............................1
Consolidated Statement of Net Earnings -
For the three and six months ended June 30, 2002 and 2001.................2
Consolidated Statement of Cash Flows -
For the three and six months ended June 30, 2002 and 2001.................3
Consolidated Statement of Stockholders' Equity -
For the six months ended June 30, 2002 and 2001...........................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................6
New Accounting Pronouncements..................................6
Financial Highlights...........................................8
Financial Condition...........................................10
Cash and Investments..........................................12
Mortgage-Backed Securities (MBS) and Loans Receivable.........12
Mortgage Servicing Rights.....................................20
Asset Quality.................................................20
Deposits......................................................23
Advances from Federal Home Loan Banks.........................25
Securities Sold Under Agreements to Repurchase................25
Other Borrowings..............................................25
Stockholders' Equity..........................................25
Regulatory Capital............................................26
Results of Operations.........................................28
Liquidity and Capital Resources...............................35
Item 3. Quantitative and Qualitative Disclosures about Market Risk.....36
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................37
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Golden West Financial
Corporation and subsidiaries (Golden West or Company), including World Savings
Bank, FSB (WSB) and World Savings Bank, FSB (Texas) (WTX), for the three and six
months ended June 30, 2002 and 2001 are unaudited. In the opinion of the
Company, all adjustments (consisting only of normal recurring accruals) that are
necessary for a fair statement of the results for such three- and six-month
periods have been included. The operating results for the three and six months
ended June 30, 2002 are not necessarily indicative of the results for the full
year.
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Dollars in thousands)
June 30 December 31 June 30
2002 2001 2001
---------------- ----------------- -----------------
(Unaudited) (Unaudited)
---------------- -----------------
Assets
Cash $ 332,027 $ 339,059 $ 439,590
Securities available for sale at fair value 369,238 622,670 672,055
Other investments at cost -0- -0- 375
Purchased mortgage-backed securities available for sale 40,562 233,403 218,876
Purchased mortgage-backed securities held to maturity 216,697 275,150 337,212
Mortgage-backed securities with recourse held to maturity 7,141,275 13,569,619 17,657,738
Loans receivable 51,624,345 41,065,375 35,511,200
Interest earned but uncollected 198,842 255,600 268,954
Investment in capital stock of Federal Home Loan Banks--at cost
which approximates fair value 1,050,819 1,105,773 1,074,756
Foreclosed real estate 11,664 11,101 8,472
Premises and equipment--at cost less accumulated depreciation 343,620 328,579 316,760
Other assets 993,025 779,942 925,555
---------------- ----------------- -----------------
$62,322,114 $58,586,271 $57,431,543
================ ================= =================
Liabilities and Stockholders' Equity
Deposits $36,230,741 $34,472,585 $31,491,959
Advances from Federal Home Loan Banks 18,948,901 18,037,509 18,945,452
Securities sold under agreements to repurchase 21,936 223,523 851,197
Federal funds purchased 50,000 -0- -0-
Bank notes 1,052,822 -0- 634,951
Senior debt--net of discount 198,407 198,215 -0-
Subordinated notes--net of discount 399,761 599,511 599,148
Taxes on income 462,940 457,964 471,232
Other liabilities 302,017 312,774 385,474
Stockholders' equity 4,654,589 4,284,190 4,052,130
---------------- ----------------- -----------------
$62,322,114 $58,586,271 $57,431,543
================ ================= =================
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended Six Months Ended
June 30 June 30
------------------------------- --------------------------------
2002 2001 2002 2001
------------- ------------- --------------- --------------
Interest Income
Interest on loans $711,522 $672,823 $1,369,722 $1,377,647
Interest on mortgage-backed securities 112,479 371,669 292,447 737,266
Interest and dividends on investments 29,788 53,252 59,856 117,014
------------- ------------- --------------- --------------
853,789 1,097,744 1,722,025 2,231,927
Interest Expense
Interest on deposits 263,148 406,117 539,729 836,865
Interest on advances 100,010 239,572 200,277 533,008
Interest on repurchase agreements 612 14,537 1,032 32,226
Interest on other borrowings 25,000 34,217 49,069 63,932
------------- ------------- --------------- --------------
388,770 694,443 790,107 1,466,031
------------- ------------- --------------- --------------
Net Interest Income 465,019 403,301 931,918 765,896
Provision for loan losses 5,186 5,641 13,725 8,824
------------- ------------- --------------- --------------
Net Interest Income after Provision for Loan Losses 459,833 397,660 918,193 757,072
Noninterest Income
Fees 33,369 42,721 69,872 74,033
Gain on the sale of securities, MBS and loans 6,487 7,883 20,906 13,760
Change in fair value of derivatives (2,174) 1,588 4,957 (5,914)
Other 13,611 14,636 25,562 28,272
------------- ------------- --------------- --------------
51,293 66,828 121,297 110,151
Noninterest Expense
General and administrative:
Personnel 85,207 72,002 168,039 140,198
Occupancy 21,240 19,480 42,405 39,289
Deposit insurance 1,509 1,418 3,011 2,804
Advertising 3,042 3,048 6,927 4,925
Other 31,969 29,167 63,646 55,316
------------- ------------- --------------- --------------
142,967 125,115 284,028 242,532
Earnings before Taxes on Income and
Cumulative Effect of Accounting Change 368,159 339,373 755,462 624,691
Taxes on income 141,791 130,444 291,013 239,683
------------- ------------- --------------- --------------
Income before Cumulative Effect of Accounting Change 226,368 208,929 464,449 385,008
Cumulative effect of accounting change, net of tax -0- -0- -0- (6,018)
------------- ------------- --------------- --------------
Net Earnings $226,368 $208,929 $ 464,449 $ 378,990
============= ============= =============== ==============
Basic Earnings Per Share before
Cumulative Effect of Accounting Change $ 1.46 $ 1.32 $ 2.99 $ 2.43
Cumulative effect of accounting change, net of tax .00 .00 .00 (.04)
------------- ------------- --------------- --------------
Basic Earnings Per Share $ 1.46 $ 1.32 $ 2.99 $ 2.39
============= ============= =============== ==============
Diluted Earnings Per Share before
Cumulative Effect of Accounting Change $ 1.44 $ 1.30 $ 2.95 $ 2.40
Cumulative effect of accounting change, net of tax .00 .00 .00 (.04)
------------- ------------- --------------- --------------
Diluted Earnings Per Share $ 1.44 $ 1.30 $ 2.95 $ 2.36
============= ============= =============== ==============
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ --------------------------------
2002 2001 2002 2001
--------------- ------------- -------------- ---------------
Cash Flows from Operating Activities
Net earnings $ 226,368 $ 208,929 $ 464,449 $ 378,990
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses 5,186 5,641 13,725 8,824
Amortization of loan (fees), costs, and (discounts) 13,255 6,276 20,456 11,090
Depreciation and amortization 9,138 7,967 17,923 16,262
Loans originated for sale (248,933) (671,234) (702,307) (893,426)
Sales of loans 339,498 712,205 1,110,787 986,777
Decrease in interest earned but uncollected 9,576 6,215 57,978 5,873
Federal Home Loan Bank stock dividends (12,363) (15,137) (28,048) (32,245)
Increase in other assets (17,582) (109,309) (216,128) (336,795)
Increase (decrease) in other liabilities (38,487) 29,193 (10,757) 36,913
Increase (decrease) in taxes on income (101,949) (55,639) 16,026 41,157
Other, net 7,653 (6,153) 17,534 (14,074)
--------------- ------------- -------------- ---------------
Net cash provided by operating activities 191,360 118,954 761,638 209,346
Cash Flows from Investing Activities
New loan activity:
New real estate loans originated for portfolio (6,648,850) (4,957,486) (11,624,052) (8,529,304)
Other, net (225,541) (110,010) (374,360) (183,985)
--------------- ------------- -------------- ---------------
(6,874,391 ) (5,067,496) (11,998,412) (8,713,289)
Real estate loan principal payments:
Monthly payments 280,147 135,532 520,685 254,581
Payoffs, net of foreclosures 2,616,121 2,512,510 4,895,804 4,025,875
--------------- ------------- -------------- ---------------
2,896,268 2,648,042 5,416,489 4,280,456
Purchases of mortgage-backed securities available for sale -0- (123,520) -0- (161,983)
Sales of mortgage-backed securities available for sale -0- -0- 176,063 -0-
Repayments of mortgage-backed securities 768,368 2,057,621 2,041,791 3,090,747
Proceeds from sales of real estate 11,505 8,110 24,770 17,629
Decrease (increase) in securities available for sale 81,461 (278,656) 231,929 (278,669)
Decrease in other investments -0- 199,498 -0- 368,180
Redemptions of Federal Home Loan Bank stock -0- 26,175 81,782 26,768
Additions to premises and equipment (16,976) (14,868) (34,127) (25,673)
--------------- ------------- -------------- ----------
Net cash used in investing activities (3,133,765) (545,094) (4,059,715) (1,395,834)
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ --------------------------------
2002 2001 2002 2001
--------------- ------------- -------------- --------------
Cash Flows from Financing Activities
Net increase in deposits(a) $ 722,389 $ 135,000 $ 1,758,156 $ 1,444,040
Additions to Federal Home Loan Bank advances 2,120,000 467,860 3,140,000 881,550
Repayments of Federal Home Loan Bank advances (711,859) (459,197) (2,228,608) (1,667,895)
Proceeds from agreements to repurchase securities 501,190 1,205,285 509,455 3,506,242
Repayments of agreements to repurchase securities (507,777) (1,208,595) (711,042) (3,512,319)
Increase (decrease) in federal funds purchased (150,000) (270,000) 50,000 -0-
Increase in bank notes 1,052,822 634,923 1,052,822 634,923
Repayment of subordinated debt (100,000) -0- (200,000) -0-
Dividends on common stock (11,230) (9,920) (22,506) (19,824)
Exercise of stock options 6,168 6,702 11,925 8,931
Purchase and retirement of Company stock (20,500) -0- (69,157) -0-
--------------- ------------- -------------- --------------
Net cash provided by financing activities 2,901,203 502,058 3,291,045 1,275,648
--------------- ------------- -------------- --------------
Net Increase (Decrease) in Cash (41,202) 75,918 (7,032) 89,160
Cash at beginning of period 373,229 363,672 339,059 350,430
--------------- ------------- -------------- --------------
Cash at end of period $ 332,027 $ 439,590 $ 332,027 $ 439,590
=============== ============= ============== ==============
Supplemental cash flow information:
Cash paid for:
Interest $ 381,833 $ 713,127 $ 786,746 $1,502,524
Income taxes 243,756 186,100 275,178 194,856
Cash received for interest and dividends 863,468 1,105,489 1,778,783 2,239,279
Noncash investing activities:
Loans and MBS converted from
adjustable rate to fixed-rate 52,910 301,761 224,633 361,711
Loans transferred to foreclosed real estate 11,166 8,806 22,185 16,706
Loans securitized into mortgage-backed securities
with recourse held to maturity -0- -0- -0- 2,995,949
Loans securitized into mortgage-backed securities
with recourse recorded as loans receivable per SFAS 140 5,351,703 3,004,577 12,194,076 3,004,577
Mortgage-backed securities held to maturity
desecuritized into adjustable rate loans and recorded
as loans receivable 2,072,618 -0- 4,147,670 -0-
(a) Includes a decrease of $626 million and $66 million of wholesale deposits for the quarter and six months ended June 30, 2001,
respectively.
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Dollars in thousands)
For the Six Months Ended June 30, 2002
-------------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Earnings Income Equity Income
----------- ------------ ------------ --------------- --------------- -------------
Balance at January 1, 2002 $ 15,553 $ 173,500 $ 3,873,758 $ 221,379 $ 4,284,190
Comprehensive income:
Net earnings -0- -0- 464,449 -0- 464,449 $ 464,449
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (13,565) (13,565) (13,565)
Reclassification adjustment for
gains included in income -0- -0- -0- (747) (747) (747)
-------------
Comprehensive Income $ 450,137
=============
Common stock issued upon
exercise of stock options 52 11,873 -0- -0- 11,925
Purchase and retirement of
Company stock (109) -0- (69,048) -0- (69,157)
Cash dividends on common
stock ($.145 per share) -0- -0- (22,506) -0- (22,506)
----------- ------------ ------------ --------------- --------------
Balance at June 30, 2002 $ 15,496 $ 185,373 $ 4,246,653 $ 207,067 $ 4,654,589
=========== ============ ============ =============== ==============
For the Six Months Ended June 30, 2001
-------------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Earnings Income Equity Income
----------- ------------ ------------ --------------- --------------- -------------
Balance at January 1, 2001 $ 15,841 $ 151,458 $ 3,287,325 $ 232,663 $ 3,687,287
Comprehensive income:
Net earnings -0- -0- 378,990 -0- 378,990 $ 378,990
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (3,254) (3,254) (3,254)
-------------
Comprehensive Income $ 375,736
=============
Common stock issued upon
exercise of stock options 47 8,884 -0- -0- 8,931
Cash dividends on common
stock ($.125 per share) -0- -0- (19,824) -0- (19,824)
----------- ------------ ------------ --------------- --------------
Balance at June 30, 2001 $ 15,888 $ 160,342 $ 3,646,491 $ 229,409 $ 4,052,130
=========== ============ ============ =============== ==============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion and analysis covers those material changes in
liquidity and capital resources that have occurred since December 31, 2001, as
well as material changes in results of operations during the three and six month
periods ended June 30, 2002 and 2001, respectively.
The following narrative is written with the presumption that the
users have read or have access to the Company's 2001 Annual Report on Form 10-K,
which contains the latest audited financial statements and notes thereto,
together with Management's Discussion and Analysis of Financial Condition and
Results of Operations as of December 31, 2001, and for the year then ended.
Therefore, only material changes in financial condition and results of
operations are discussed here.
The Securities and Exchange Commission (SEC) maintains a web-site,
which contains reports, proxy and information statements, and other information
pertaining to registrants that file electronically with the SEC, including
Golden West. The address is: www.sec.gov. In addition, financial information
about Golden West can be obtained at the Company's website, www.gdw.com.
This report may contain certain forward-looking statements, which are
not historical facts and pertain to future operating results of the Company.
Such statements are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward looking statements are
inherently subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond the Company's control.
In addition, forward-looking statements are subject to change. Actual results
may differ materially from the results discussed in forward-looking statements
for the reasons among others discussed in the Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Company's 2001
Annual Report on Form 10-K.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), as amended,
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the Statement of Financial Condition and measure
those instruments at fair value. The Company adopted SFAS 133 as of January 1,
2001 and recorded a loss of $10 million before tax, or $6 million after tax.
Because the Company has decided not to use permitted hedge accounting for the
derivative financial instruments in portfolio on June 30, 2002, the changes in
fair value of these instruments are reported in Noninterest Income as the
"Change in Fair Value of Derivatives" in the Consolidated Statement of Net
Earnings.
In September 2000, Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS
140). This statement replaces previously issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (SFAS 125). SFAS 140
revises the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it carries
over most of SFAS 125's provisions without reconsideration. This statement is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. Because the Company retains 100% of
the beneficial interests in its MBS and MBS-REMIC securitizations, it does not
have any effective "retained interests" requiring disclosures under SFAS 140. In
accordance with SFAS 140, the Company's securitizations after March 31, 2001
resulted in securities classified as securitized loans and recorded as loans
receivable (see pages 12 and 20 for further discussions).
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" (SFAS 141) and Statement of Financial
Accounting Standards No.142, "Goodwill and Other Intangible Assets" (SFAS No.
142). SFAS 141 requires that all business combinations initiated after June 30,
2001 be accounted for under the purchase method and addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination. SFAS 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with finite useful lives
be amortized and that goodwill and intangible assets with indefinite lives will
not be amortized, but will rather be tested at least annually for impairment.
The adoption of SFAS 142 on January 1, 2002 had no impact on the Company's
financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations"(SFAS 143) which addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS 143 applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development, and the normal operation of a
long-lived asset, except for certain obligations of lessees. This statement
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. SFAS 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002. The
Company does not expect the adoption of this statement to have a material impact
on its financial statements and results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which requires that one accounting
model be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and broadens the presentation of
discontinued operations to include more disposal transactions. In addition, this
statement resolves implementation issues of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The adoption of SFAS 144 on January 1, 2002 had no impact on the
Company's financial statements and results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", (SFAS 146) which addresses
accounting for restructuring and similar costs. SFAS 146 supersedes previous
accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. SFAS
146 requires that the liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. Under Issue 94-3, a
liability for an exit cost should be recognized at the date of the Company's
commitment to an exit plan. SFAS 146 also establishes that the liability should
initially be measured and recorded at fair value. Accordingly, SFAS 146 may
affect the timing of recognizing future restructuring costs as well as the
amounts recognized. The Company believes that SFAS 146 will not have a
significant impact on its financial position or results of operations.
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
June 30 December 31 June 30
2002 2001 2001
-------------- -------------- --------------
Assets $ 62,322,114 $ 58,586,271 $57,431,543
Loans receivable including mortgage-backed securities 59,022,879 55,143,547 53,725,026
Adjustable rate mortgages including MBS 56,263,460 51,794,400 50,385,100
Deposits 36,230,741 34,472,585 31,491,959
Stockholders' equity 4,654,589 4,284,190 4,052,130
Stockholders' equity/total assets 7.47% 7.31% 7.06%
Book value per common share $ 30.04 $ 27.55 $ 25.50
Common shares outstanding 154,957,387 155,531,777 158,876,757
Yield on loan portfolio 5.57% 6.39% 7.53%
Yield on mortgage-backed securities 5.72% 6.35% 7.54%
Yield on investments 17.23% 2.86% 5.50%
Yield on earning assets 5.59% 6.36% 7.52%
Cost of deposits 2.92% 3.39% 4.80%
Cost of borrowings 2.20% 2.72% 4.62%
Cost of funds 2.65% 3.15% 4.73%
Yield on earning assets less cost of funds 2.94% 3.21% 2.79%
Ratio of nonperforming assets to total assets .63% .67% .53%
Ratio of troubled debt restructured to total assets .01% .00% .00%
Loans serviced for others with recourse $ 2,991,206 $ 2,797,634 $ 2,124,614
Loans serviced for others without recourse 2,262,751 2,035,250 1,366,016
World Savings Bank, FSB
Total assets $ 62,307,618 $ 58,377,834 $ 57,423,598
Net worth 5,111,507 4,701,922 4,267,107
Net worth/total assets 8.20% 8.05% 7.43%
Regulatory capital ratios:(a)
Tier 1 capital (core or leverage) 7.91% 7.71% 7.07%
Total risk-based capital 14.10% 14.24% 13.19%
World Savings Bank, FSB (Texas)
Total assets $ 7,750,886 $ 7,680,360 $ 5,733,238
Net worth 407,623 401,886 293,387
Net worth/total assets 5.26% 5.23% 5.12%
Regulatory capital ratios:(a)
Tier 1 capital (core or leverage) 5.26% 5.23% 5.12%
Total risk-based capital 24.81% 25.05% 25.57%
(a) For regulatory purposes, the requirements to be considered "well-capitalized" are 5.0% and 10.0% for tier 1 capital and total
risk-based capital, respectively.
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended Six Months Ended
June 30 June 30
----------------------------------- --------------------------------
2002 2001 2002 2001
--------------- --------------- -------------- ------------
New real estate loans originated $ 6,897,783 $ 5,628,720 $ 12,326,359 $ 9,422,730
New adjustable rate mortgages as a percentage of
new real estate loans originated 95% 83% 93% 85%
Refinances as a percentage of new real estate
loans originated 56% 58% 59% 56%
Deposits increase(a) $ 722,389 $ 135,000 $ 1,758,156 $ 1,444,040
Net earnings before cumulative effect of
accounting change $ 226,368 $ 208,929 $ 464,449 $ 385,008
Net earnings 226,368 208,929 464,449 378,990
Basic earnings per share before cumulative effect
of accounting change $ 1.46 $ 1.32 $ 2.99 $ 2.43
Basic earnings per share 1.46 1.32 2.99 2.39
Diluted earnings per share before cumulative effect
of accounting change $ 1.44 $ 1.30 $ 2.95 $ 2.40
Diluted earnings per share 1.44 1.30 2.95 2.36
Cash dividends on common stock $ .0725 $ .0625 $ .145 $ .125
Average common shares outstanding 154,899,196 158,724,536 155,155,946 158,602,033
Average diluted common shares outstanding 157,078,432 160,968,179 157,269,057 160,771,429
Ratios:(b)
Net earnings before accounting change/
average net worth (ROE) 19.85% 21.19% 20.76% 20.01%
Net earnings before accounting change/
average assets (ROA) 1.49% 1.47% 1.55% 1.36%
Net interest margin(c) 3.15% 2.92% 3.21% 2.78%
General and administrative expense/average assets .94% .88% .95% .86%
Efficiency ratio(d) 27.69% 26.61% 26.97% 27.68%
(a) Includes a decrease of $626 million and $66 million of wholesale deposits for the quarter and six months ended June 30, 2001,
respectively.
(b) Ratios are annualized by multiplying the quarterly computation by four and the semi-annual computation by two. Averages are
computed by adding the beginning balance and each monthend balance during the quarter and six month period and dividing by four
and seven, respectively.
(c) Net interest margin is net interest income divided by average interest-earning assets.
(d) The efficiency ratio is defined as general and administrative expense divided by the sum of net interest income and noninterest
income.
Financial Condition
The consolidated condensed balance sheet shown in the table below
presents the Company's assets and liabilities in percentage terms at June 30,
2002, December 31, 2001, and June 30, 2001. The reader is referred to page 46
of the Company's 2001 Annual Report on Form 10-K for similar information for
the years 1998 through 2001 and a discussion of the changes in the composition
of the Company's assets and liabilities in those years.
TABLE 1
Consolidated Condensed Balance Sheet
In Percentage Terms
June 30 December 31 June 30
2002 2001 2001
-------------- ---------------- -------------
Assets
Cash and investments 1.1% 1.6% 1.9%
Loans receivable including mortgage-backed
securities 94.7 94.2 93.5
Other assets 4.2 4.2 4.6
-------------- ---------------- -------------
100.0% 100.0% 100.0%
============== ================ =============
Liabilities and Stockholders' Equity
Deposits 58.1% 58.9% 54.8%
Federal Home Loan Bank advances 30.4 30.8 33.0
Securities sold under agreements to repurchase .0 .4 1.5
Federal funds purchased .1 .0 .0
Bank notes 1.7 .0 1.1
Senior debt .3 .3 .0
Subordinated debt .6 1.0 1.0
Other liabilities 1.3 1.3 1.5
Stockholders' equity 7.5 7.3 7.1
-------------- ---------------- -------------
100.0% 100.0% 100.0%
============== ================ =============
As the above table shows, the largest asset is loans receivable
including mortgage-backed securities, which consists primarily of long-term
mortgages. Deposits represent the largest portion of the Company's liabilities.
The disparity between the repricing (maturity, prepayment, or interest rate
change) of mortgage loans and investments and the repricing of deposits and
borrowings can have a material impact on the Company's results of operations.
The difference between the repricing characteristics of assets and liabilities
is commonly referred to as "the gap."
The following gap table shows that, as of June 30, 2002, the
Company's assets reprice sooner than its liabilities. If all repricing assets
and liabilities responded equally to changes in the interest rate environment,
then the gap analysis would suggest that the Company's earnings would rise when
interest rates increase and would fall when interest rates decrease. However,
the changes in the Company's earnings are also affected by the built-in
reporting and repricing lags inherent in the adjustable rate mortgage indexes
used by the Company, in particular, the Eleventh District Cost of Funds Index
(COFI), which is the index Golden West uses to determine the rate on the largest
portion of its existing adjustable rate mortgages (ARMs). The reporting lag
occurs because of the time it takes to gather the data needed to compute the
index. As a result, the COFI in effect in any month actually reflects the
Eleventh District's cost of funds at the level it was two months prior,
resulting in a two month reporting lag. The repricing lag occurs because COFI is
based on a portfolio of accounts, not all of which reprice immediately. Many of
these liabilities, including certificates of deposit, do not reprice each month,
and, when they do reprice, may not reflect the full change in market rates. Some
liabilities, such as low-rate checking or passbook savings accounts, reprice by
only small amounts. Still other liabilities, such as noninterest bearing
deposits, do not reprice at all. Therefore, COFI does not fully reflect a change
in market interest rates. Consequently, when the interest rate environment
changes, the COFI lags cause assets to reprice more slowly than liabilities,
enhancing earnings when rates are falling and holding down earnings when rates
rise. Additionally, the Company originates loans that are tied to the Golden
West Cost of Savings Index (COSI). The COSI reflects the actual rate on Golden
West's deposits as of the prior monthend and has a one-month reporting lag. The
Company also originates loans that are tied to the Certificate of Deposit Index
(CODI), which is the 12-month rolling average of the monthly average of the
three-month certificate of deposit rate as published in the Federal Reserve H-15
Statistical Report. CODI has a one-month reporting lag. In addition, by virtue
of being a 12-month rolling average, the repricing of CODI trails changes in
short-term market interest rates. For more information on how these lags affect
net interest income, see pages 28 and 29. Partially offsetting the index
reporting and repricing lags are similar lags on a portion of the Company's
liabilities.
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of June 30, 2002
(Dollars in millions)
Projected Repricing(a)
----------------------------------------------------------------------------------
0 - 3 4 - 12 1 - 5 Over 5
Months Months Years Years Total
------------- --------------- -------------- -------------- --------------
Interest-Earning Assets
Investments $ 368 $ -0- $ -0- $ 1 $ 369
Mortgage-backed securities:
Adjustable rate 6,668 -0- -0- -0- 6,668
Fixed-rate 55 139 369 168 731
Loans receivable:
Adjustable rate 47,027 1,776 705 -0- 49,508
Fixed-rate 111 261 808 707 1,887
Other(b) 1,316 -0- -0- -0- 1,316
Impact of interest rate swaps 556 (320) (236) -0- -0-
------------- --------------- -------------- -------------- --------------
Total $ 56,101 $ 1,856 $ 1,646 $ 876 $ 60,479
============= =============== ============== ============== ==============
Interest-Bearing Liabilities
Deposits(c) $ 25,779 $ 6,888 $ 3,550 $ 14 $ 36,231
FHLB advances 18,205 296 3 445 18,949
Other borrowings 1,325 -0- 398 -0- 1,723
Impact of interest rate swaps 91 (91) -0- -0- -0-
------------- --------------- -------------- -------------- --------------
Total $ 45,400 $ 7,093 $ 3,951 $ 459 $ 56,903
============= =============== ============== ============== ==============
Repricing gap $ 10,701 $ (5,237) $ (2,305) $ 417
============= =============== ============== ==============
Cumulative gap $ 10,701 $ 5,464 $ 3,159 $ 3,576
============= =============== ============== ==============
Cumulative gap as a percentage of
total assets 17.2% 8.8% 5.1%
============= =============== ==============
(a) Based on scheduled maturity or scheduled repricing; loans and MBS reflect scheduled repayments and projected prepayments of
principal based on current rates of prepayment.
(b) Includes cash in banks and Federal Home Loan Bank (FHLB) stock.
(c) Liabilities with no maturity date, such as checking, passbook and money market deposit accounts, are assigned zero months.
Cash and Investments
At June 30, 2002, December 31, 2001, and June 30, 2001, the Company
had securities available for sale in the amount of $369 million, $623 million
and $672 million, respectively, including unrealized gains on securities
available for sale of $338 million, $362 million, and $377 million,
respectively. At June 30, 2002, December 31, 2001, and June 30, 2001, the
Company had no securities held for trading in its investment securities
portfolio.
Mortgage-Backed Securities and Loans Receivable
The Company invests primarily in whole loans. From time to time, the
Company securitizes loans from its portfolio into mortgage-backed securities
(MBS) and Real Estate Mortgage Investment Conduit securities (MBS-REMICs).
Because the Company currently retains all of the beneficial interest in these
MBS and MBS-REMIC securitizations and because the securitizations do not meet
all the requirements for separate security recognition, the securitizations
formed after March 31, 2001 are securities classified as securitized loans and
included in loans receivable in accordance with SFAS 140 (see page 6 for further
discussion). Additionally, from time to time, the Company purchases MBS. MBS,
MBS-REMICs, and securitized loans are available to be used as collateral for
borrowings.
During the first half of 2002, the Company desecuritized $4.1 billion
of Federal National Mortgage Association (FNMA) MBS that were classified as MBS
held to maturity with recourse. This desecuritization led to a significant
decrease in the outstanding balance of MBS, which in turn contributed to lower
MBS repayments and lower interest on mortgage-backed securities. The
desecuritization also contributed to an increase in the outstanding balance of
loans receivable and an increase in interest on loans.
The following table shows the components of the Company's loans
receivable portfolio, including MBS, at June 30, 2002, December 31, 2001, and
June 30, 2001.
TABLE 3
Balance of Loans Receivable, Including MBS, by Component
(Dollars in thousands)
June 30 December 31 June 30
2002 2001 2001
---------------- ----------------- ----------------
Loans $35,973,805 $35,952,918 $ 32,644,920
Securitized loans (a)(b) 15,659,091 5,186,717 2,956,619
---------------- ----------------- ----------------
Total loans, excluding MBS 51,632,896 41,139,635 35,601,539
---------------- ----------------- ----------------
FNMA MBS (c) -0- 4,732,779 6,385,423
MBS-REMICs 7,141,275 8,836,840 11,272,315
Purchased MBS 257,259 508,553 556,088
---------------- ----------------- ----------------
Total MBS 7,398,534 14,078,172 18,213,826
---------------- ----------------- ----------------
Other (d) (8,551) (74,260) (90,339)
---------------- ----------------- ----------------
Total loans receivable, including MBS $59,022,879 $55,143,547 $ 53,725,026
================ ================= ================
(a) Loans securitized after March 31, 2001 are classified as securitized loans per SFAS 140 (see discussion on page 6).
(b) Includes $4.2 billion at June 30, 2002 of loans securitized with FNMA where the securitized loans are subject to full
credit recourse to the Company.
(c) The underlying loans of the FNMA MBS are subject to full credit recourse to the Company.
(d) Includes deferred loan costs, allowance for loan losses, and other miscellaneous reserves and discounts.
Repayments from the loan portfolio, including MBS, were $3.7 billion
and $7.5 billion for the three and six months ended June 30, 2002 as compared to
$4.7 billion and $7.4 billion during the same periods in 2001. Loan portfolio
repayments were lower in the second quarter of 2002 as compared to 2001 due to a
decrease in the prepayment rate, and were similar for the first six months of
2002 and 2001.
Mortgage-Backed Securities
At June 30, 2002, December 31, 2001, and June 30, 2001, the
Company had MBS held to maturity in the amount of $7.4 billion, $13.8 billion,
and $18.0 billion, respectively. The decrease was due primarily to
prepayments and to the desecuritization of $4.1 billion of MBS during the first
half of 2002. MBS-REMICs and purchased MBS are available to be used as
collateral for borrowings. The Company has the ability and intent to hold
these MBS until maturity and, accordingly, these MBS are classified as held to
maturity.
At June 30, 2002, December 31, 2001, and June 30, 2001, the Company
had MBS available for sale in the amount of $41 million, $233 million, and $219
million, respectively, including unrealized gains on MBS available for sale of
$1 million at June 30, 2002, $2 million at December 31, 2001, and $24 thousand
at June 30, 2001. During the first quarter of 2002, the Company sold $176
million of MBS available for sale which resulted in a gain of $3 million. At
June 30, 2002, December 31, 2001, and June 30, 2001, the Company had no trading
MBS.
Repayments of MBS during the second quarter and first six months of
2002 were $768 million and $2.0 billion compared to $2.1 billion and $3.1
billion during the same periods in 2001. MBS repayments were lower during the
first half of 2002 as compared to the first half of 2001 due to a decrease in
the prepayment rate and a decrease in the balance of MBS outstanding.
Loans
New loan originations for the three and six months ended June 30,
2002 amounted to $6.9 billion and $12.3 billion compared to $5.6 billion and
$9.4 billion for the same periods in 2001. The volume of originations increased
during 2002 due to a continued strong demand for mortgage loans and an increase
in the popularity of adjustable rate mortgages, the Company's principal product.
The decrease in interest rates in 2001 led to an increase in refinance activity
nationwide. Refinances have continued to constitute a large portion of the
mortgage market in 2002. Refinanced loans were 56% and 59%, respectively, of new
loan originations for the three and six months ended June 30, 2002, compared to
58% and 56%, respectively, for the three and six months ended June 30, 2001.
First mortgages originated for sale amounted to $235 million and $675
million for the three and six months ended June 30, 2002, compared to $640
million and $840 million for the same periods in 2001. During the second quarter
and first six months of 2002, $53 million and $225 million of loans, including
MBS, were converted at the customers' request from adjustable rate to fixed-rate
compared to $302 million and $362 million for the same periods in 2001. The
Company sells most of its new and converted fixed-rate loans. For the three and
six months ended June 30, 2002, the Company sold $302 million and $1.0 billion,
respectively, of fixed-rate first mortgage loans compared to $672 million and
$887 million for the same periods in 2001.
At June 30, 2002, the Company had lending operations in 38 states.
The largest source of mortgage originations was loans secured by residential
properties in California. For the three and six months ended June 30, 2002, 68%
of total loan originations were on residential properties in California compared
to 71% for the same periods in 2001. The five largest states, other than
California, for originations for the six months ended June 30, 2002, were
Florida, Texas, New Jersey, Washington, and Colorado with a combined total of
17% of total originations. The percentage of the total loan portfolio (including
MBS with recourse and MBS-REMICs) that was comprised of residential loans in
California was 64% at June 30, 2002, December 31, 2001 and June 30, 2001. Of the
64% at June 30, 2002, 54% were in Northern California and 46% were in Southern
California.
The Company emphasizes adjustable rate mortgages -- loans with
interest rates that change periodically in accordance with movements in
specified indexes. The portion of the mortgage portfolio (including MBS and
MBS-REMICs) composed of adjustable rate loans was 95% at June 30, 2002 compared
to 94% at December 31, 2001, and 94% at June 30, 2001. The Company's ARM
originations constituted 95% and 93%, respectively, of new mortgage loans made
for the second quarter and first six months of 2002 compared to 83% and 85% for
the same periods in 2001.
Golden West originates ARMs tied primarily to CODI, COFI, and COSI.
Prior to 2001, the Company also originated ARMs tied to the twelve-month rolling
average of the One-Year Treasury Constant Maturity (TCM).
The following table shows the distribution of ARM originations by
index for the second quarter and first six months of 2002 and 2001.
TABLE 4
Adjustable Rate Mortgage Originations by Index
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- --------------------------
ARM Index 2002 2001 2002 2001
- ----------- ------------ ------------ ------------ ------------
CODI $ 3,316,752 $ -0- $ 4,860,400 $ -0-
COFI 1,126,392 2,253,906 2,140,049 3,368,145
COSI 2,115,656 2,435,626 4,409,535 4,671,870
------------ ------------ ------------ ------------
$ 6,558,800 $ 4,689,532 $11,409,984 $8,040,015
============ ============ ============ ============
The following table shows the distribution by index of the Company's
outstanding balance of adjustable rate mortgages (including ARM MBS and ARM
MBS-REMICs) at June 30, 2002, December 31, 2001, and June 30, 2001.
TABLE 5
Adjustable Rate Mortgage Portfolio by Index
(Including ARM MBS and ARM MBS-REMICs)
(Dollars in thousands)
June 30 December 31 June 30
ARM Index 2002 2001 2001
- ---------------- ----------------- ------------------ -----------------
CODI $ 5,346,902 $ 552,746 $ -0-
COFI 27,352,241 29,010,008 26,736,755
COSI 22,130,973 20,943,596 22,205,572
Other(a) 1,433,344 1,288,050 1,408,920
----------------- ------------------ -----------------
$56,263,460 $ 51,794,400 $ 50,351,247
================= ================== =================
(a) Includes equity lines of credit.
During the life of the ARM loan, the interest rate may not be raised
above a lifetime cap, set at the time of origination or assumption. The weighted
average maximum lifetime cap rate on the Company's ARM loan portfolio (including
ARMs swapped into MBS with recourse and MBS-REMICs before any reduction for loan
servicing fees) was 12.17% or 6.52% above the actual weighted average rate at
June 30, 2002, versus 12.25% or 4.60% above the weighted average rate at June
30, 2001.
Approximately $5.1 billion of the Company's ARM loans (including MBS
with recourse and MBS-REMICs) have terms that state that the interest rate may
not fall below a lifetime floor set at the time of origination or assumption. As
of June 30, 2002, $2.3 billion of ARM loans had reached their rate floors as
compared to $323 million at June 30, 2001. The weighted average floor rate on
the loans that had reached their floor was 5.92% at June 30, 2002 compared to
7.74% at June 30, 2001. Without the floor, the average rate on these loans would
have been 5.20% at June 30, 2002 and 7.19% at June 30, 2001.
Most of the Company's loans are collateralized by first deeds of
trust on one-to-four family homes. The Company also originates second deeds of
trust in the form of fixed-rate loans and equity lines of credit (ELOCs) indexed
to the prime rate. The Company's fixed-rate second mortgage originations
amounted to $51 million and $95 million for the second quarter and first six
months of 2002 compared to $82 million and $155 million for the same periods in
2001. The outstanding balance of fixed-rate seconds amounted to $300 million and
$436 million at June 30, 2002 and 2001, respectively. The Company established
new ELOCs totaling $538 million and $129 million in the first six months of
2002 and 2001, respectively. The outstanding balance of ELOCs amounted to
$625 million and $116 million at June 30, 2002 and 2001, respectively. The
maximum total line of credit available on the Company's ELOCs amounted to
$1.0 billion and $199 million at June 30, 2002 and 2001, respectively.
The Company generally lends up to 80% of the appraised value of
residential real estate property. In some cases, a higher amount is possible
through a first mortgage loan or a combination of a first and a second mortgage
loan on the same property. The second mortgage loan may be a fixed-rate loan or
an equity line of credit.
During the second quarter and first six months of 2002, 14% of loans
originated exceeded 80% of the appraised value of the property. For the second
quarter and first six months of 2001, 12% of loans originated were in excess of
80% of the appraised value of the property.
The Company takes steps to reduce the potential credit risk with
respect to loans with a loan to value (LTV) or a combined loan to value (CLTV)
over 80%. Among other things, the loan amount may not exceed 95% of the
appraised value of a single-family residence at the time of origination. Also,
many first mortgage loans with an LTV over 80% carry mortgage insurance, which
reimburses the Company for losses up to a specified percentage per loan, thereby
reducing the effective LTV to below 80%. Furthermore, the Company sells without
recourse a significant portion of its second mortgage originations. Sales of
second mortgages amounted to $37 million and $72 million for the second quarter
and first six months of 2002 as compared to $40 million and $100 million for the
same periods in 2001. In addition, the Company carries pool mortgage insurance
on most seconds not sold, including equity lines of credit. The cumulative
losses covered by this pool mortgage insurance are limited to 10% or 20% of the
original balance of each insured pool.
The following table shows mortgage originations with LTV ratios or
combined LTV ratios greater than 80% for the three and six months ended June 30,
2002 and 2001.
TABLE 6
Mortgage Originations with Loan to Value and
Combined Loan to Value Ratios Greater than 80%
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ -----------------------------
2002 2001 2002 2001
------------- ------------- -------------- -------------
First mortgages with loan to value ratios
greater than 80%:
With mortgage insurance $ 70,851 $ 65,812 $ 121,914 $ 101,564
With no mortgage insurance 16,673 29,369 36,096 49,365
------------- ------------- -------------- -------------
87,524 95,181 158,010 150,929
------------- ------------- -------------- -------------
First and second mortgages with combined
loan to value ratios greater than 80%:
With pool insurance on second mortgages 645,882 300,969 1,205,625 534,987
With no pool insurance 216,670 297,974 301,341 481,290
------------- ------------- -------------- -------------
862,552 598,943 1,506,966 1,016,277
------------- ------------- -------------- -------------
Total $950,076 $ 694,124 $1,664,976 $1,167,206
============= ============= ============== =============
The following table shows the outstanding balance of mortgages with
original LTV or combined LTV ratios greater than 80% at June 30, 2002 and 2001.
TABLE 7
Balance of Mortgages with Loan to Value and
Combined Loan to Value Ratios Greater than 80%
(Dollars in thousands)
As of June 30
---------------------------------
2002 2001
-------------- --------------
First mortgages with loan to value
ratios greater than 80%:
With mortgage insurance $ 473,248 $ 404,813
With no mortgage insurance 383,247 672,187
-------------- --------------
856,495 1,077,000
-------------- --------------
First and second mortgages with combined
loan to value ratios greater than 80%:
With pool insurance on second mortgages 2,960,853 1,323,985
With no pool insurance 404,283 532,637
-------------- --------------
3,365,136 1,856,622
-------------- --------------
Total $4,221,631 $2,933,622
============== ==============
The following tables show the Company's loan portfolio by state at
June 30, 2002 and 2001.
TABLE 8
Loan Portfolio by State
June 30, 2002
(Dollars in thousands)
Residential
Real Estate Commercial Loans
---------------------------------- Real Total as a % of
State 1 - 4 5+ Land Estate Loans Portfolio
- -------------------------- ---------------- --------------- ------------- ---------------- ---------------- -----------
Northern California $ 18,530,279 $1,754,610 $ 5 $ 14,339 $20,299,233 34.55%
Southern California 15,900,895 1,571,756 -0- 1,525 17,474,176 29.74
Florida 3,040,478 32,587 -0- 94 3,073,159 5.23
Texas 2,333,348 103,982 137 849 2,438,316 4.15
New Jersey 2,145,145 -0- -0- 1,315 2,146,460 3.65
Washington 1,191,831 674,763 -0- -0- 1,866,594 3.18
Illinois 1,433,971 127,350 -0- -0- 1,561,321 2.66
Colorado 1,268,946 186,538 -0- 4,421 1,459,905 2.48
Other(a) 8,310,757 124,961 3 3,065 8,438,786 14.36
---------------- --------------- ------------- ---------------- ---------------- ----------
Totals $ 54,155,650 $4,576,547 $ 145 $ 25,608 58,757,950 100.00%
================ =============== ============= ================ ==========
Deferred loan costs 273,500
Loan discount on purchased loans (882)
Undisbursed loan funds (7,143)
Allowance for loan losses (273,881)
Loans to facilitate (LTF) interest reserve (134)
Troubled debt restructured (TDR) interest reserve (11)
Loans on deposits 16,221
----------------
Total loan portfolio and loans securitized into MBS-REMICs 58,765,620
Loans securitized into MBS-REMICs (7,141,275)(b)(c)
----------------
Total loans receivable $51,624,345
================
(a) All states included in other have total loan balances with less than 2% of total loans.
(b) The above schedule includes the June 30, 2002 balances of loans that were securitized and retained as MBS-REMICs.
(c) The significantly lower balance compared with June 30, 2001 (see Table 9) is due to the repayment of MBS-REMICs over the
past year and the desecuritization of FNMA MBS with recourse in the first half of 2002. Since March 31, 2001, all new FNMA
MBS with recourse and MBS-REMICs have been classified as securitized loans per SFAS 140 (see discussion on page 6).
TABLE 9
Loan Portfolio by State
June 30, 2001
(Dollars in thousands)
Residential
Real Estate Commercial Loans
--------------------------------- Real Total as a % of
State 1 - 4 5+ Land Estate Loans Portfolio
------------------------- --------------- -------------- ------------- ---------------- --------------- -------------
Northern California $15,775,234 $1,776,907 $ 99 $ 18,552 $17,570,792 33.00%
Southern California 14,865,240 1,627,418 -0- 4,028 16,496,686 30.99
Florida 2,632,552 17,699 -0- 208 2,650,459 4.98
Texas 2,101,291 65,593 191 982 2,168,057 4.07
New Jersey 1,978,178 -0- -0- 2,111 1,980,289 3.72
Washington 1,074,793 611,148 -0- -0- 1,685,941 3.17
Illinois 1,439,747 115,959 -0- -0- 1,555,706 2.92
Colorado 1,244,450 186,905 -0- 4,596 1,435,951 2.70
Other(a) 7,612,287 79,438 14 4,391 7,696,130 14.45
--------------- -------------- ------------- ---------------- --------------- ----------
Totals $ 48,723,772 $ 4,481,067 $ 304 $ 34,868 53,240,011 100.00%
=============== ============== ============= ================ ==========
Deferred loan costs 162,358
Loan discount on purchased loans (1,259)
Undisbursed loan funds (6,169)
Allowance for loan losses (245,078)
Loans to facilitate (LTF) interest reserve (183)
Troubled debt restructured (TDR) interest reserve (8)
Loans on deposits 19,266
---------------
Total loan portfolio and loans securitized into FNMA MBS with recourse
and MBS-REMICs 53,168,938
Loans securitized into FNMA MBS with recourse and MBS-REMICs (17,657,738)(b)
---------------
Total loans receivable $35,511,200
===============
(a) All states included in other have total loan balances less than 2% of total loans.
(b) The above schedule includes the June 30, 2001 balances of loans that were securitized and retained as FNMA MBS with recourse
and MBS-REMICs.
Loan repayments consist of monthly loan amortization and loan
payoffs. For the three and six months ended June 30, 2002, loan repayments were
$2.9 billion and $5.4 billion compared to $2.6 billion and $4.3 billion for the
same periods in 2001. The increase in loan repayments was primarily due to an
increase in the balance of loans receivable outstanding.
Securitized Loans
During the second quarter and first six months of 2002, the Company
securitized $5.4 billion and $12.2 billion of loans, respectively. During the
second quarter of 2001, the Company securitized $3.0 billion of loans. At
June 30, 2002, the balance of securitized loans was $15.7 billion. These loans
are available to be used as collateral for borrowings and are classified as
loans receivable on the Statement of Financial Condition.
Mortgage Servicing Rights
Capitalized mortgage servicing rights (CMSRs) are included in "Other
assets" on the Consolidated Statement of Financial Condition. The following
table shows the changes in capitalized mortgage servicing rights for the three
and six months ended June 30, 2002 and 2001.
TABLE 10
Capitalized Mortgage Servicing Rights
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ------------ ----------- ------------
Beginning balance of capitalized mortgage servicing rights $ 61,470 $ 29,970 $ 56,056 $ 28,355
New capitalized mortgage servicing rights from loan sales 5,291 9,176 15,212 13,458
Amortization of capitalized mortgage servicing rights (4,983) (3,037) (9,490) (5,704)
----------- ------------ ----------- ------------
Ending balance of capitalized mortgage servicing rights $ 61,778 $ 36,109 $ 61,778 $ 36,109
=========== ============ =========== ============
The estimated amortization of the June 30, 2002 balance for the
remainder of 2002 and the five years ending 2007 is $10.4 million (2002), $16.2
million (2003), $12.0 million (2004), $8.1 million (2005), $5.4 million (2006),
and $8.0 million (2007). Actual results may vary depending upon the level of the
payoffs of the loans currently serviced.
The book value of Golden West's servicing rights did not exceed the
fair value at June 30, 2002 or 2001 and, therefore, no write-down of the
servicing rights to their fair value was necessary.
Asset Quality
An important measure of the soundness of the Company's loan and MBS
portfolio is its ratio of nonperforming assets (NPAs) and troubled debt
restructured (TDRs) to total assets. Nonperforming assets include non-accrual
loans (loans, including loans securitized into MBS with recourse and loans
securitized into MBS-REMICs, that are 90 days or more past due) and real estate
acquired through foreclosure. No interest is recognized on non-accrual loans.
The Company's TDRs are made up of loans on which delinquent payments have been
capitalized or on which temporary interest rate reductions have been made,
primarily to customers impacted by adverse economic conditions.
The following table shows the components of the Company's NPAs and
TDRs and the various ratios to total assets.
TABLE 11
Nonperforming Assets and Troubled Debt Restructured
(Dollars in thousands)
June 30 December 31 June 30
2002 2001 2001
---------------- ----------------- ---------------
Non-accrual loans $ 382,458 $ 382,510 $ 295,537
Real estate acquired through foreclosure 10,855 10,177 7,733
Real estate in judgment 809 924 739
---------------- ----------------- ---------------
Total nonperforming assets $ 394,122 $ 393,611 $ 304,009
================ ================= ===============
TDRs, net of interest reserve $ 3,683 $ 1,505 $ 127
================ ================= ===============
Ratio of NPAs to total assets .63% .67% .53%
================ ================= ===============
Ratio of TDRs to total assets .01% .00% .00%
================ ================= ===============
Ratio of NPAs and TDRs to total assets .64% .67% .53%
================ ================= ===============
The balance of NPAs increased slightly from December 31, 2001 to June
30, 2002. NPAs continue to reflect the normal increase in delinquencies
associated with the aging of the large volume of mortgages originated during the
past two years together with the soft U.S. economy. The Company closely monitors
all delinquencies and takes appropriate steps to protect its interests. Interest
foregone on non-accrual loans (loans 90 days or more past due) is computed as
the change in the interest reserve on non-accrual loans. This interest reserve
is the amount of interest income that would have been recognized on these loans
if they had been performing. Interest foregone on non-accrual loans was a
recovery of $1 million for the second quarter of 2002 and an expense of $1
million for the six months ended June 30, 2002 compared to an expense of $2
million and $5 million for the same periods in 2001. Interest foregone on TDRs
amounted to $1 thousand and $6 thousand for the three and six months ended June
30, 2002, compared to $13 thousand and $39 thousand for the three and six months
ended June 30, 2001.
The tables on the following page show the Company's nonperforming
assets by state as of June 30, 2002 and 2001.
TABLE 12
Nonperforming Assets by State
June 30, 2002
(Dollars in thousands)
Non-Accrual Loans(a) Foreclosed Real Estate (FRE)
------------------------------------ ---------------------------------------
Residential Commercial Residential Commercial NPAs as
Real Estate Real Real Estate Real Total a % of
State 1 - 4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans
- ------------------- ---------- ---------- ---------- ---------- -------- ---------- ---------- ----------
Northern California $ 76,192 $ -0- $ 80 $ 464 $ -0- $ -0- $ 76,736 .38%
Southern California 118,514 249 309 2,977 -0- -0- 122,049 .70
Florida 34,458 -0- 22 234 -0- -0- 34,714 1.13
Texas 20,282 -0- 442 1,341 -0- -0- 22,065 .90
New Jersey 18,092 -0- 225 115 -0- -0- 18,432 .86
Washington 13,911 -0- -0- 326 -0- -0- 14,237 .76
Illinois 16,222 -0- -0- 1,556 -0- -0- 17,778 1.14
Colorado 2,909 66 -0- 69 -0- -0- 3,044 .21
Other(c) 80,426 59 -0- 4,893 -0- -0- 85,378 1.01
---------- ---------- ---------- ---------- -------- ---------- ---------- ----------
Totals $381,006 $ 374 $ 1,078 $ 11,975 $ -0- $ -0- 394,433 .67
========== ========== ========== ========== ======== ==========
FRE general valuation allowance (311) (.00)
---------- ----------
Total nonperforming assets $394,122 .67%
========== ==========
(a) Non-accrual loans are 90 days or more past due and interest is not recognized on these loans.
(b) The June 30, 2002 balances include loans that were securitized into MBS-REMICs.
(c) All states included in Other have total loan balances less than 2% of total loans.
TABLE 13
Nonperforming Assets by State
June 30, 2001
(Dollars in thousands)
Non-Accrual Loans(a) Foreclosed Real Estate (FRE)
------------------------------------ ---------------------------------------
Residential Commercial Residential Commercial NPAs as
Real Estate Real Real Estate Real Total a % of
State 1 - 4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans
- ------------------- ---------- ---------- ---------- ---------- -------- ---------- ---------- ----------
Northern California $ 50,430 $ 450 $ 103 $ 129 $ -0- $ -0- $ 51,112 .29%
Southern California 94,511 322 564 1,377 -0- -0- 96,774 .59
Florida 28,437 -0- 81 265 -0- -0- 28,783 1.09
Texas 14,453 -0- -0- 974 -0- -0- 15,427 .71
New Jersey 17,662 -0- -0- 579 -0- -0- 18,241 .92
Washington 7,385 -0- -0- -0- -0- -0- 7,385 .44
Illinois 13,801 -0- -0- 420 194 -0- 14,415 .93
Colorado 3,378 -0- -0- -0- -0- -0- 3,378 .24
Other(c) 63,662 298 -0- 4,780 -0- -0- 68,740 .89
---------- ---------- ---------- ---------- -------- ---------- ---------- ----------
Totals $293,719 $ 1,070 $ 748 $ 8,524 $ 194 $ -0- 304,255 .57
========== ========== ========== ========== ======== ==========
FRE general valuation allowance (246) (.00)
---------- ----------
Total nonperforming assets $304,009 .57%
========== ==========
(a) Non-accrual loans are 90 days or more past due and interest is not recognized on these loans.
(b) The June 30, 2001 balances include loans that were securitized into FNMA MBS with recourse and MBS-REMICs.
(c) All states included in Other have total loan balances with less than 2% of total loans.
The Company provides specific valuation allowances for losses on
loans when impaired, and a write-down on foreclosed real estate when any
significant and permanent decline in value is identified. The Company also
utilizes a methodology for monitoring and estimating probable loan losses that
is based on both the Company's historical loss experience in the loan portfolio
and factors reflecting current economic conditions. This approach uses a
database that identifies losses on loans and foreclosed real estate from past
years to the present, broken down by year of origination, type of loan, and
geographical area. Based on these historical analyses, management is then able
to estimate a range of general loss allowances by type of loan and risk category
to cover losses inherent in the portfolio. One-to-four single-family real estate
loans are evaluated as a group. In addition, periodic reviews are made of major
multi-family and commercial real estate loans and foreclosed real estate. Where
indicated, specific and general valuation allowances are established or
adjusted. In estimating probable losses, consideration is given to the estimated
sale price, cost of refurbishing the security property, payment of delinquent
taxes, cost of disposal, and cost of holding the property. Additions to and
reductions from the allowances are reflected in current earnings based upon
quarterly reviews of the portfolio. The review methodology and historical
analyses are reconsidered quarterly.
The table below shows the changes in the allowance for loan losses
for the three and six months ended June 30, 2002 and 2001.
TABLE 14
Changes in Allowance for Loan Losses
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------- ------------- -------------
Beginning allowance for loan losses $ 269,327 $ 237,964 $ 261,013 $ 236,708
Provision for losses charged to expense 5,186 5,641 13,725 8,824
Loans charged off (799) (726) (1,120) (755)
Recoveries 167 35 263 168
Net transfer to allowance from recourse liability -0- 2,164 -0- 133
------------ ------------- ------------- -------------
Ending allowance for loan losses $ 273,881 $ 245,078 $ 273,881 $ 245,078
============ ============= ============= =============
Annualized ratio of net chargeoffs to average loans
outstanding (including MBS with recourse
and MBS-REMICs) .00% .01% .00% .00%
============ ============= ============= =============
Ratio of allowance for loan losses to total loans
(including MBS with recourse and MBS-REMICs) .47% .46%
============= =============
Ratio of allowance for loan losses to nonperforming assets 69.5% 80.6%
============= =============
Deposits
The Company raises deposits through its retail branch system as well
as through the capital markets.
Retail deposits increased during the second quarter of 2002 by $722
million, including interest credited of $234 million, compared to an increase of
$761 million, including interest credited of $334 million in the second quarter
of 2001. Retail deposits increased during the first half of 2002 by $1.8
billion, including interest credited of $464 million, compared to an increase of
$1.5 billion, including interest credited of $682 million in the first half of
2001. Retail deposits increased during the first six months of 2002 because the
public found savings to be a more favorable investment compared with other
alternatives. At June 30, 2002 and 2001, transaction accounts (which include
checking, passbook, and money market accounts) represented 53% and 28%,
respectively, of the total balance of deposits.
The Company uses government securities dealers to sell wholesale
certificates of deposit (CDs) to institutional investors. The Company's deposit
balance as of June 30, 2001 included $119 million of these wholesale CDs. There
were no outstanding wholesale CDs at June 30, 2002 or December 31, 2001.
The table below shows the Company's deposits by interest rate and by
remaining maturity at June 30, 2002 and 2001.
TABLE 15
Deposits
(Dollars in millions)
June 30
-----------------------------------------------------------
2002 2001
---------------------------- ----------------------------
Rate* Amount Rate* Amount
----------- ------------- ----------- -------------
Deposits by rate:
Interest-bearing checking accounts 1.55% $ 77 3.55% $ 94
Interest-bearing checking accounts swept
into money market deposit accounts 1.93 4,352 3.29 3,577
Passbook accounts .85 466 1.42 452
Money market deposit accounts 2.85 14,278 4.10 4,548
Term certificate accounts with original maturities of:
4 weeks to 1 year 2.25 7,002 4.92 13,166
1 to 2 years 3.40 5,636 5.73 6,406
2 to 3 years 4.40 1,725 5.61 1,434
3 to 4 years 4.86 1,072 5.68 537
4 years and over 5.22 1,491 5.88 680
Retail jumbo CDs 3.99 132 5.39 479
Wholesale CDs .00 -0- 4.70 119
------------- -------------
$ 36,231 $ 31,492
============= =============
Deposits by remaining maturity:
No contractual maturity 2.59% $ 19,173 3.62% $ 8,671
Maturity within one year 2.96 13,494 5.22 20,755
1 to 5 years 4.50 3,550 5.50 2,035
Over 5 years 5.37 14 5.48 31
------------- -------------
$ 36,231 $ 31,492
============= =============
* Weighted average interest rate, including the impact of interest rate swaps.
At June 30, the weighted average cost of deposits was 2.92% (2002) and 4.80% (2001).
Advances from Federal Home Loan Banks
The Company uses borrowings from the FHLBs, also known as "advances,"
to provide funds for loan origination activities. Advances are secured by
pledges of certain loans, MBS-REMICs, other MBS, and capital stock of the FHLBs.
FHLB advances amounted to $18.9 billion at June 30, 2002, compared to $18.0
billion at December 31, 2001, and $18.9 billion at June 30, 2001.
Securities Sold Under Agreements to Repurchase
The Company borrows funds through transactions in which securities
are sold under agreements to repurchase (Reverse Repos). Reverse Repos are
entered into primarily with selected major government securities dealers and
large banks, using MBS from the Company's portfolio. Reverse Repos amounted to
$22 million, $224 million, and $851 million at June 30, 2002,
December 31, 2001, and June 30, 2001, respectively.
Other Borrowings
At June 30, 2002, Golden West, at the holding company level, had a
total of $400 million of subordinated debt issued and outstanding as compared to
$600 million at June 30, 2001. As of June 30, 2002, the Company's subordinated
debt securities were rated A2 and A- by Moody's Investors Service (Moody's) and
Standard & Poor's Corporation (S&P), respectively.
In July 2000, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance or sale of up to $1.0
billion of securities, including senior debt. At June 30, 2002, the Company had
issued and outstanding $200 million of five-year senior debt pursuant to such
registration statement. In August 2002, the Company issued an additional $300
million of five-year senior debt pursuant to such registration statement. As of
June 30, 2002, the Company's senior debt was rated A1 and A by Moody's and S&P,
respectively.
WSB has a $5 billion bank note program. At June 30, 2002, WSB had
$1.1 billion of bank notes outstanding as compared to $635 million at
June 30, 2001. As of June 30, 2002, WSB's bank notes were rated P1 and A1 by
Moody's and S&P, respectively.
During 1996, WSB received permission from the OTS to issue
non-convertible medium-term notes to institutional investors under rules similar
to Office of the Comptroller of the Currency rules applicable to similarly
situated national banks. As of June 30, 2002, WSB had not issued any notes under
this authority. As of June 30, 2002, WSB's long-term deposits and other senior
obligations were rated Aa3 by Moody's and A+ by S&P.
Stockholders' Equity
The Company's stockholders' equity increased by $370 million during
the first six months of 2002 as a result of net earnings partially offset by
decreased market values of securities available for sale, the payment of
quarterly dividends to stockholders, and the $69 million cost of the repurchase
of Company stock. The Company's stockholders' equity increased by $365 million
during the first six months of 2001 as a result of net earnings partially offset
by decreased market values of securities available for sale and by the payment
of quarterly dividends to stockholders. Unrealized gains, net of taxes, on
securities and MBS available for sale included in stockholders' equity at June
30, 2002, December 31, 2001, and June 30, 2001 were $207 million, $221 million,
and $229 million, respectively.
Since 1993, through five separate actions, Golden West's Board of
Directors has authorized the repurchase by the Company of up to 60.6 million
shares of Golden West's common stock. As of June 30, 2002, 47.7 million shares
had been repurchased and retired at a cost of $1.2 billion since October 1993,
of which 1.1 million shares were purchased and retired at a cost of $69 million
during the first six months of 2002. Dividends from subsidiaries are expected to
continue to be the major source of funding for the stock repurchase program. The
repurchase of Golden West stock is not intended to have a material impact on the
normal liquidity of the Company.
Regulatory Capital
The Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA) established capital standards for federally insured financial
institutions, such as WSB and WSB's subsidiary, WTX. Under FIRREA, savings
institutions must have tangible capital equal to at least 1.5% of adjusted total
assets, core capital equal to at least 4% of adjusted total assets, and
risk-based capital equal to at least 8% of risk-weighted assets.
The OTS and other bank regulatory agencies have adopted rules based
upon five capital tiers: well-capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. The rules provide that a financial institution is
"well-capitalized" if its leverage ratio is 5% or greater, its Tier 1 risk-based
capital ratio is 6% or greater, its total risk-based capital ratio is 10% or
greater and the institution is not subject to a capital directive.
As used herein, the total risk-based capital ratio is the ratio of
total capital to risk-weighted assets, the Tier 1 risk-based capital ratio is
the ratio of core capital to risk-weighted assets, and the Tier 1 or leverage
ratio is the ratio of core capital to adjusted total assets, in each case as
calculated in accordance with current OTS capital regulations. As of June 30,
2002, the most recent notification from the OTS categorized WSB and WTX as
"well-capitalized" under the current requirements. There are no conditions or
events that have occurred since that notification that the Company believes
would have an impact on the categorization of WSB or WTX.
The following tables show WSB's and WTX's regulatory capital ratios
and compares them to the OTS minimum requirements at June 30, 2002 and 2001.
TABLE 16
Regulatory Capital Ratios, Minimum Capital Requirements,
and Well-Capitalized Capital Requirements
As of June 30, 2002
(Dollars in thousands)
WELL-CAPITALIZED
MINIMUM CAPITAL CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
------------------------- -------------------------- ---------------------------
Capital Ratio Capital Ratio Capital Ratio
-------------- ------- ---------------- ------- ---------------- -------
WSB and Subsidiaries
Tangible $4,904,386 7.91% $ 930,048 1.50% --- ---
Tier 1 (core or leverage) 4,904,386 7.91 2,480,129 4.00 $ 3,100,161 5.00%
Tier 1 risk-based 4,904,386 13.36 --- --- 2,202,452 6.00
Total risk-based 5,174,083 14.10 2,936,603 8.00 3,670,754 10.00
WTX
Tangible $ 407,623 5.26% $ 116,263 1.50% --- ---
Tier 1 (core or leverage) 407,623 5.26 310,035 4.00 $ 387,544 5.00%
Tier 1 risk-based 407,623 24.79 --- --- 98,645 6.00
Total risk-based 407,833 24.81 131,527 8.00 164,409 10.00
TABLE 17
Regulatory Capital Ratios, Minimum Capital Requirements,
and Well-Capitalized Capital Requirements
As of June 30, 2001
(Dollars in thousands)
WELL-CAPITALIZED
MINIMUM CAPITAL CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
------------------------- -------------------------- ---------------------------
Capital Ratio Capital Ratio Capital Ratio
-------------- ------- ---------------- ------- ---------------- -------
WSB and Subsidiaries
Tangible $4,038,042 7.07% $ 856,399 1.50% --- ---
Tier 1 (core or leverage) 4,038,042 7.07 2,283,732 4.00 $ 2,854,665 5.00%
Tier 1 risk-based 4,038,042 12.17 --- --- 1,990,178 6.00
Total risk-based 4,376,473 13.19 2,653,570 8.00 3,316,963 10.00
WTX
Tangible $ 293,387 5.12% $ 86,003 1.50% --- ---
Tier 1 (core or leverage) 293,387 5.12 229,341 4.00 $ 286,676 5.00%
Tier 1 risk-based 293,387 25.57 --- --- 68,849 6.00
Total risk-based 293,388 25.57 91,799 8.00 114,749 10.00
Results Of Operations
Net Earnings
Net earnings for the three months ended June 30, 2002 were $226
million compared to net earnings of $209 million for the three months ended June
30, 2001. Net earnings for the six months ended June 30, 2002 were $464 million
compared to net earnings of $385 million (excluding the cumulative effect of the
accounting change) for the six months ended June 30, 2001. Net earnings for the
first six months increased in 2002 as compared to 2001 primarily as a result of
increased net interest income and increased noninterest income, which were
partially offset by an increase in general and administrative expenses. Net
earnings for the six months ended June 30, 2001, including the cumulative effect
of the accounting change, net of tax, were $379 million. See page 6 for further
discussion on SFAS 133 and the cumulative effect of the accounting change.
Net Interest Income
The largest component of the Company's revenue and earnings is net
interest income, which is the difference between the interest and dividends
earned on loans and other investments and the interest paid on customer deposits
and borrowings. Long-term growth of the Company's net interest income, and hence
earnings, is related to the ability to expand the mortgage portfolio, the
Company's primary earning asset, by originating and retaining high-quality
adjustable rate home loans. Over the short term, however, net interest income
can be influenced by business conditions, especially movements in interest
rates, which can temporarily increase or reduce changes in net interest income.
Net interest income amounted to $465 million and $932 million,
respectively, for the three and six months ended June 30, 2002. These amounts
represented 15% and 22% increases, respectively, over the $403 million and $766
million reported during the same periods in 2001. As discussed below, the growth
of net interest income in 2002 compared with the prior year resulted from both
expansion of the Company's earning assets and an increase in the Company's
average primary spread, which is the difference between the yield on loans and
other investments and the rate paid on deposits and borrowings.
Between June 30, 2001 and June 30, 2002, the Company's earning asset
balance increased by $5.0 billion or 9%. This growth resulted from strong
mortgage originations which more than offset loan repayments, especially in the
second quarter of 2002.
As noted in the discussion of the Gap on pages 10 and 11, the
Company's liabilities respond more rapidly to movements in short-term interest
rates than the Company's assets, most of which are adjustable rate mortgages
tied to indexes that lag changes in market interest rates. Consequently, when
short-term interest rates decline, the Company's primary spread temporarily
widens, because the index lags slow the downward movement of the yield on the
Company's adjustable rate mortgage portfolio. When interest rates stabilize
after a period of falling rates, the primary spread usually declines for a while
until the yield on the ARM portfolio catches up to previous rate decreases. The
opposite occurs when interest rates increase. Specifically, when short-term
interest rates move up, the Company's primary spread compresses for a period of
time, because the index lags slow the upward adjustment of the yield on the
Company's ARMs. When interest rates stabilize after a period of rising rates,
the primary spread expands for a while until the ARM yield catches up to
previous rate increases. For the five years ended June 30, 2002, which included
periods of both falling and rising interest rates, the Company's primary spread
averaged 2.36% with a monthend high of 3.21% and a monthend low of 1.88%.
During 2001, the Federal Reserve's Open Market Committee lowered the
Federal Funds rate, a key short-term interest rate, by a total of 475 basis
points in order to stimulate the then-weak economy. Other short-term market
rates experienced similar decreases. In response to significantly lower
short-term interest rates, the Company's cost of funds declined by 284 basis
points during 2001. While the Company's cost of funds declined considerably
during 2001, the yield on the Company's assets fell by only 166 basis points,
because the indexes to which the large adjustable rate mortgage portfolio is
tied moved down more slowly. As a consequence, the Company's primary spread
widened substantially during 2001, and at December 31, 2001 reached 3.21%, the
highest level in the Company's history. During the first half of 2002, the
Company's cost of funds declined by an additional 50 basis points. At the same
time, the Company's asset yield fell by 77 basis points, as the ARM indexes
continued to adjust downward in response to the large interest rate declines
experienced in 2001. Because the yield on earning assets fell faster than the
cost of funds in the first half of 2002, the Company's primary spread narrowed
from 3.21% at December 31, 2001 to 2.94% at June 30, 2002. However, the average
primary spread in the first half of 2002 was greater than the level reported
for the same period in 2001, contributing to the increase in net interest
income for the first six months of 2002 compared with the first half of 2001.
The table below shows the components of the Company's spread at June
30, 2002, December 31, 2001, and June 30, 2001.
TABLE 18
Yield on Earning Assets,
Cost of Funds, and Primary Spread
June 30 December 31 June 30
2002 2001 2001
------------- ------------- -------------
Yield on loan portfolio 5.57% 6.39% 7.53%
Yield on MBS 5.72 6.35 7.54
Yield on investments 17.23(a) 2.86 5.50
------------- ------------- -------------
Yield on earning assets 5.59 6.36 7.52
------------- ------------- -------------
Cost of deposits 2.92 3.39 4.80
Cost of borrowings 2.20 2.72 4.62
------------- ------------- -------------
Cost of funds 2.65 3.15 4.73
------------- ------------- -------------
Primary spread 2.94% 3.21% 2.79%
============= ============= =============
(a) The June 30, 2002 yield reflects WSB's high yield on the Federal Home Loan Mortgage Corporation stock combined with
a smaller outstanding balance of other lower-yielding investment securities compared with the December 31, 2001 and the
June 30, 2001 balances.
The Company holds ARMs in order to manage the rate sensitivity of the
asset side of the balance sheet. The yield on the Company's ARM portfolio tends
to lag changes in market interest rates principally because of lags related to
the indexes. The largest portion of the Company's ARMs have interest rates that
change in accordance with an index based on the cost of deposits and borrowings
of savings institutions that are members of the FHLB of San Francisco (COFI).
The Company's portfolio also contains loans that are tied to the Golden West
Cost of Savings Index (COSI) and to the Certificate of Deposit Index (CODI). As
previously discussed on pages 10 and 11, there is a two-month reporting lag for
COFI and a one-month reporting lag for COSI and CODI, as well as repricing lags
for COFI and CODI. Additionally, certain features of adjustable rate mortgages
cause the yield on the Company's ARM portfolio to lag changes in market interest
rates. These features include introductory fixed rates on new ARM loans, the
interest rate adjustment frequency of ARM loans, interest rate caps or limits on
individual rate changes, and interest rate floors. On balance, the index lags
and ARM structural features cause the Company's assets initially to reprice more
slowly than its liabilities, resulting in a temporary reduction in net interest
income when rates increase and a temporary increase in net interest income when
rates fall.
TABLE 19
Average Interest-Earning Assets and Interest-Bearing Liabilities
(Dollars in thousands)
Three Months Ended Three Months Ended
June 30, 2002 June 30, 2001
--------------------------------------------- ------------------------------------------------
Annualized End of Annualized End of
Average Average Period Average Average Period
Balances(a) Yield Yield Balances(a) Yield Yield
---------------- ------------- --------- --------------- -------------- ---------
ASSETS
Investment securities $ 3,538,827 1.97% 17.23%(b) $ 3,153,417 4.84% 5.50%
Mortgage-backed securities 7,807,752 5.76 5.72 19,188,526 7.75 7.54
Loans receivable(c) 49,758,774 5.72 5.57 34,323,819 7.84 7.53
Invest. in capital stock of FHLBs 1,043,235 4.74 4.32 1,077,496 5.62 5.53
---------------- ------------- --------------- --------------
Interest-earning assets $ 62,148,588 5.50% $ 57,743,258 7.60%
================ ============= =============== ==============
LIABILITIES
Deposits:
Checking accounts $ 252,463 .90% 1.55% $ 134,038 2.50% 3.55%
Savings accounts 17,939,536 2.53 2.59 7,539,395 3.57 3.62
Term accounts 17,808,838 3.35 3.29 24,516,130 5.52 5.24
---------------- ------------- --------- --------------- -------------- ---------
Total deposits 36,000,837 2.92 2.92 32,189,563 5.05 4.80
Advances from FHLBs 18,879,135 2.12 2.09 18,995,132 5.05 4.58
Reverse repurchases 149,925 1.63 .44 1,250,331 4.65 4.25
Other borrowings 3,946,268 2.53 3.41 2,605,557 5.25 5.51
---------------- ------------- --------------- --------------
Interest-bearing liabilities $ 58,976,165 2.64% $ 55,040,583 5.05%
================ ============= =============== ==============
Average net interest spread 2.86% 2.55%
============= ==============
Net interest income $ 465,019 $ 403,301
================ ===============
Net yield on average interest-
earning assets 2.99% 2.79%
=============== ==============
(a) Averages are computed using daily balances.
(b) The June 30, 2002 yield reflects WSB's high yield on the Federal Home Loan Mortgage Corporation stock combined with a
smaller outstanding balance of other lower-yielding investment securities compared with the June 30, 2001 balances
(c) Includes nonaccrual loans (90 days or more past due).
TABLE 20
Average Interest-Earning Assets and Interest-Bearing Liabilities
(Dollars in thousands)
Six Months Ended Six Months Ended
June 30, 2002 June 30, 2001
--------------------------------------------- ------------------------------------------------
Annualized End of Annualized End of
Average Average Period Average Average Period
Balances(a) Yield Yield Balances(a) Yield Yield
---------------- ------------- --------- --------------- -------------- ----------
ASSETS
Investment securities $ 3,221,840 1.97% 17.23%(b) $ 3,158,811 5.37% 5.50%
Mortgage-backed securities 9,949,363 5.88 5.72 18,751,977 7.86 7.54
Loans receivable(c) 46,537,555 5.89 5.57 34,478,563 7.99 7.53
Invest. in capital stock of FHLBs 1,049,407 5.35 4.32 1,077,887 5.98 5.53
---------------- ------------- --------------- --------------
Interest-earning assets $ 60,758,165 5.67% $ 57,467,238 7.77%
================ ============= =============== ==============
LIABILITIES
Deposits:
Checking accounts $ 179,005 1.25% 1.55% $ 128,680 2.47% 3.55%
Savings accounts 16,496,386 2.49 2.59 7,248,566 3.56 3.62
Term accounts 18,937,203 3.52 3.29 24,664,048 5.73 5.24
---------------- ------------- ---------- --------------- -------------- ----------
Total deposits 35,612,594 3.03 2.92 32,041,294 5.22 4.80
Advances from FHLBs 18,214,902 2.20 2.09 19,144,204 5.57 4.58
Reverse repurchases 122,720 1.68 .44 1,239,802 5.20 4.25
Other borrowings 3,669,683 2.67 3.41 2,274,579 5.62 5.51
---------------- ------------- --------------- --------------
Interest-bearing liabilities $ 57,619,899 2.74% $ 54,699,879 5.36%
================ ============= =============== ==============
Average net interest spread 2.93% 2.41%
============= ==============
Net interest income $ 931,918 $ 765,896
================ ===============
Net yield on average interest-
earning assets 3.07% 2.67%
============= ==============
(a) Averages are computed using daily balances.
(b) The June 30, 2002 yield reflects WSB's high yield on the Federal Home Loan Mortgage Corporation stock combined with a
smaller outstanding balance of other lower-yielding investment securities compared with the June 30, 2001 balances.
(c) Includes nonaccrual loans (90 days or more past due).
39
The following table shows the Company's revenues and expenses as a
percentage of total revenues for the three and six months ended June 30, 2002
and 2001.
TABLE 21
Selected Revenue and Expense Items
as Percentages of Total Revenues
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- -------------------------
2002 2001 2002 2001
------------ ---------- ---------- ----------
Interest on loans 78.6% 57.8% 74.3% 58.8%
Interest on mortgage-backed securities 12.4 31.9 15.9 31.5
Interest and dividends on investments 3.3 4.6 3.2 5.0
------------ ---------- ---------- ----------
94.3 94.3 93.4 95.3
Less:
Interest on deposits 29.1 34.9 29.3 35.7
Interest on advances and other borrowings 13.8 24.8 13.6 26.9
------------ ---------- ---------- ----------
42.9 59.7 42.9 62.6
Net interest income 51.4 34.6 50.5 32.7
Provision for loan losses .6 .5 .7 .4
------------ ---------- ---------- ----------
Net interest income after provision for loan losses 50.8 34.1 49.8 32.3
Add:
Fees 3.7 3.7 3.8 3.2
Gain on the sale of securities, MBS, and loans .7 .7 1.1 .6
Change in fair value of derivatives (.2) .1 .3 (.3)
Other noninterest income 1.5 1.2 1.4 1.2
------------ ---------- ---------- ----------
5.7 5.7 6.6 4.7
Less:
General and administrative expenses 15.8 10.7 15.4 10.3
Taxes on income 15.7 11.2 15.8 10.2
Cumulative effect of accounting change .0 .0 .0 .3
------------ ---------- ---------- ----------
Net earnings 25.0% 17.9% 25.2% 16.2%
============ ========== ========== ==========
Interest Rate Swaps
The Company enters into interest rate swaps as a part of its interest
rate risk management strategy. Such instruments are entered into solely to alter
the repricing characteristics of designated assets and liabilities. The Company
does not hold any interest rate swaps or other derivative financial instruments
for trading purposes.
TABLE 22
Schedule of Interest Rate Swaps Activity
(Notional amounts in millions)
Six Months Ended
June 30, 2002
--------------------------------
Receive Pay
Fixed Fixed
Swaps Swaps
------------- --------------
Balance at December 31, 2001 $ 103 $ 621
Additions -0- 275
Maturities -0- (170)
-------------- ---------------
Balance at June 30, 2002 $ 103 $ 726
============== ===============
The range of floating interest rates received on swap contracts in
the first six months of 2002 was 1.72% to 3.67%, and the range of floating
interest rates paid on swap contracts was 1.80% to 2.00%. The range of fixed
interest rates received on swap contracts in the first six months of 2002 was
6.39% to 6.56% and the range of fixed interest rates paid on swap contracts was
2.16% to 8.15%.
Interest rate swap payment activity decreased net interest income by
$4.9 million and $10.9 million for the three and six months ended June 30, 2002,
respectively, as compared to decreases of $2.5 million and $3.7 million for the
same periods in 2001.
Upon adoption of SFAS 133 on January 1, 2001, the Company reported a
one-time pre-tax charge of $10 million, or $.04 after tax per diluted share. As
a result of the ongoing valuation of the Company's swaps, the Company reported
pre-tax income of $5 million, or $.02 after tax per diluted share for the six
months ended June 30, 2002 as compared to pre-tax expense of $6 million, or $.02
after tax per diluted share for the six months ended June 30, 2001. This
additional income/expense occurred because the market value of Golden West's
swaps changed in 2002 and 2001 as a result of interest rate movements. The
changes in fair value of these swap contracts are reflected as a net liability
on the Consolidated Statement of Financial Condition with corresponding amounts
reported in Noninterest Income as the "Change in Fair Value of Derivatives" in
the Consolidated Statement of Net Earnings. The Company has decided not to
utilize permitted hedge accounting for the derivative financial instruments in
portfolio at June 30, 2002.
Interest on Loans
In the second quarter of 2002, interest on loans increased by $39
million or 5.8% from the comparable period in 2001. The increase in the second
quarter of 2002 was due to a $15.4 billion increase in the average portfolio
balance which was partially offset by a 212 basis point decrease in the average
portfolio yield. The growth of the average portfolio balance in the second
quarter of 2002 was due both to originations exceeding repayments and to the
desecuritization of $4.1 billion of FNMA MBS with recourse in the first half of
2002 which lowered the balance of MBS and increased the balance of loans
receivable. In the first six months of 2002, interest on loans decreased by $8
million or .6% from the comparable period in 2001. The decrease in the first
half of 2002 was due to a 210 basis point decrease in the average portfolio
yield which was partially offset by a $12.1 billion increase in the average
portfolio balance.
Interest on Mortgage-Backed Securities
In the second quarter of 2002, interest on mortgage-backed securities
decreased by $259 million or 69.7% from the comparable period in 2001. The
decrease in the second quarter of 2002 was primarily due to a $11.4 billion
decrease in the average portfolio balance and a 199 basis point decrease in the
average portfolio yield. In the first half of 2002, interest on mortgage-backed
securities decreased by $445 million or 60.3% from the comparable period in
2001. The decrease in the first six months of 2002 was primarily due to an $8.8
billion decrease in the average portfolio balance and a 198 basis point decrease
in the average portfolio yield. The decrease in the mortgage-backed securities
portfolio was primarily due to the desecuritization of $4.1 billion FNMA MBS
into loans and the prepayment of loans underlying the MBS, as discussed on pages
12 and 13.
Interest and Dividends on Investments
The income earned on the investment portfolio fluctuates, depending
upon the volume outstanding and the yields available on short-term investments.
In the second quarter of 2002, interest and dividends on investments decreased
by $23 million or 44.1% from the comparable period in 2001. The decrease in the
second quarter of 2002 was due to a 266 basis point decrease in the average
portfolio yield which was partially offset by a $385 million increase in the
average portfolio balance. In the first six months of 2002, interest and
dividends on investments decreased by $57 million or 48.8% from the comparable
period in 2001. The decrease in the first half of 2002 was due to a 329 basis
point decrease in the average portfolio yield which was partially offset by a
$63 million increase in the average portfolio balance.
Interest on Deposits
In the second quarter of 2002, interest on deposits decreased by $143
million or 35.2% from the comparable period in 2001. The decrease in the second
quarter of 2002 was due to a 212 basis point decrease in the average cost of
deposits which was partially offset by a $3.7 billion increase in the average
balance of deposits. In the first six months of 2002, interest on deposits
decreased by $297 million or 35.5% from the comparable period in 2001. The
decrease in the first half of 2002 was due to a 220 basis point decrease in the
average cost of deposits which was partially offset by a $3.5 billion increase
in the average balance of deposits.
Interest on Advances and Other Borrowings
In the second quarter of 2002, interest on advances and other
borrowings decreased by $163 million or 56.4% from the comparable period of
2001. The decrease in the second quarter of 2002 was primarily due to a 287
basis point decrease in the average cost of these borrowings which was partially
offset by a $124 million increase in the average balance. In the first six
months of 2002, interest on advances and other borrowings decreased by $379
million or 60.2% from the comparable period of 2001. The decrease in the first
half of 2002 was primarily due to a 331 basis point decrease in the average cost
of these borrowings and a $651 million decrease in the average balance.
Provision for Loan Losses
The provision for loan losses was $5 million and $14 million,
respectively, for the three and six months ended June 30, 2002 compared to
$6 million and $9 million for the same periods in 2001. The provision for loan
losses in 2002 reflected the growth in the loan portfolio.
Noninterest Income
Noninterest income was $51 million and $121 million, respectively,
for the three and six months ended June 30, 2002 compared to $67 million and
$110 million for the same periods in 2001. The increase for the first six months
of 2002 as compared to 2001 resulted primarily from increased gains on the sale
of fixed-rate mortgages and the income associated with the ongoing valuation of
swaps.
General and Administrative Expenses
For the second quarter and first six months of 2002, general and
administrative expenses (G&A) were $143 million and $284 million compared to
$125 million and $243 million for the comparable periods in 2001. G&A as a
percentage of average assets on an annualized basis was .94% and .95% for the
second quarter and first six months of 2002 compared to .88% and .86% for the
same periods in 2001. G&A expenses increased in 2002 because of the growth of
loans and deposits and the costs associated with the ongoing investments in
personnel, facilities, and technology.
Taxes on Income
The Company utilizes the accrual method of accounting for income tax
purposes and for preparing its published financial statements. Taxes as a
percentage of earnings were 38.5% for the second quarter and first six months of
2002 compared to 38.4% for the comparable periods in 2001.
Liquidity and Capital Resources
WSB's principal sources of funds are cash flows generated from
earnings; deposits; loan repayments; sales of loans; wholesale certificates of
deposit; borrowings from the FHLB of San Francisco; bank notes; borrowings from
its parent; borrowings from its WTX subsidiary; and debt collateralized by
mortgages, MBS, or other securities. In addition, WSB has other alternatives
available to provide liquidity or finance operations including federal funds
purchased, the issuance of medium-term notes, borrowings from public offerings
of debt, and borrowings from commercial banks. Furthermore, under certain
conditions, WSB may borrow from the Federal Reserve Bank of San Francisco to
meet short-term cash needs.
WTX's principal sources of funds are cash flows generated from
borrowings from the FHLB of Dallas; earnings; deposits; loan repayments; debt
collateralized by mortgages or securities; and borrowings from affiliates.
The principal sources of funds for WSB's parent, Golden West, are
dividends from subsidiaries, interest on investments, and the proceeds from the
issuance of debt securities. Various statutory and regulatory restrictions and
tax considerations limit the amount of dividends WSB can pay. The principal
liquidity needs of Golden West are for payment of interest and principal on
senior debt and subordinated debt securities, capital contributions to its
insured subsidiaries, dividends to stockholders, the repurchase of Golden West
stock (see stockholders' equity section on page 26), and general and
administrative expenses. At June 30, 2002, December 31, 2001, and June 30, 2001,
Golden West's total cash and investments amounted to $129 million, $364 million,
and $379 million, respectively. Included in the cash and investments above are a
subordinated note receivable from WSB in the amount of $100 million at December
31, 2001, and June 30, 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Golden West estimates the sensitivity of the Company's net interest
income, net earnings, and capital ratios to interest rate changes and
anticipated growth based on simulations using an asset/liability model which
takes into account the lags described on pages 10, 11 and 28. The simulation
model projects net interest income, net earnings, and capital ratios based on a
significant interest rate increase that is sustained for a thirty-six month
period. The model is based on the actual maturity and repricing characteristics
of interest-rate sensitive assets and liabilities. For mortgage assets, the
model incorporates assumptions regarding the impact of changing interest rates
on prepayment rates, which are based on the Company's historical prepayment
information. The model factors in projections for anticipated activity levels
by product lines offered by the Company. Based on the information and
assumptions in effect at June 30, 2002, a 200 basis point rate increase
sustained over a thirty-six month period would not materially affect the
Company's long-term profitability and financial strength.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
Exhibit No. Description
3 (a) Certificate of Incorporation, as amended, and amendments thereto, are
incorporated by reference to Exhibit 3(a) to the Company's Annual
Report on Form 10-K (File No. 1-4269) for the year ended December 31,
1990.
3 (b) By-Laws of the Company, as amended in 1997, are incorporated by
reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K
(File No. 1-4269) for the year ended December 31, 1997.
4 (a) The Registrant agrees to furnish to the Commission, upon request, a
copy of each instrument with respect to issues of long-term debt, the
authorized principal amount of which does not exceed 10% of the total
assets of the Company.
10 (a) 1996 Stock Option Plan, as amended, is incorporated by reference to
Exhibit A of the Company's Definitive Proxy Statement on Schedule 14A,
filed on March 15, 1996, for the Company's 1996 Annual Meeting of
Stockholders.
10 (b) Annual Incentive Bonus Plan is incorporated by reference to Exhibit A
of the Company's Definitive Proxy Statement on Schedule 14A, filed on
March 15, 2002, for the Company's 2002 Annual Meeting of Stockholders.
10 (c) Deferred Compensation Agreement between the Company and James T. Judd
is incorporated by reference to Exhibit 10(b) of the Company's Annual
Report on Form 10-K (File No. 1-4629) for the year ended December 31,
1986.
10 (d) Deferred Compensation Agreement between the Company and Russell W.
Kettell is incorporated by reference to Exhibit 10(c) of the Company's
Annual Report on Form 10-K (File No. 1-4629) for the year ended
December 31, 1986.
10 (e) Form of Supplemental Retirement Agreement between the Company and
certain executive officers is incorporated by reference to Exhibit
10(j) to the Company's Annual Report on Form 10-K (File No. 1-4629)
for the year ended December 31, 1990.
10 (f) Operating lease on Company headquarters building, 1901 Harrison
Street, Oakland, California 94612, is incorporated by reference to
Exhibit 10(h) of the Company's Quarterly Report on Form 10-Q (File No.
1-4629) for the quarter ended September 30, 1998.
11 Statement of Computation of Earnings Per Share.
99.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C.
Section 1350.
99.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350.
(b) Reports on Form 8-K
The Registrant did not file any report on Form 8-K during the quarter
for which this report is but has since filed the following reports on Form 8-K
with the Commission:
1. Report filed August 1, 2002. Item 9. Regulation FD Disclosure. The
report dated July 30, 2002 included a Statement Under Oath of Principal
Executive Officer and Principal Financial Officer Regarding Facts and
Circumstances Relating to Exchange Act Filings.
2. Report filed August 2, 2002. Item 7. Exhibits. The report dated
July 18, 2002 included an excerpt of a press release announcing the
Company's earnings and other financial results for the second quarter
ended June 30, 2002.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GOLDEN WEST FINANCIAL CORPORATION
Dated: August 13, 2002 /s/ Russell W. Kettell
- ------------------------ -----------------------------------------
Russell W. Kettell
President and Chief Financial Officer
/s/ William C. Nunan
-----------------------------------------
William C. Nunan
Group Senior Vice President and Chief Accounting Officer
EXHIBIT 11
Golden West Financial Corporation
Statement of Computation of Basic and Diluted Earnings Per Share
(Dollars in thousands except per share figures)
Three Months Ended Six Months Ended
June 30 June 30
--------------------------------- ----------------------------------
2002 2001 2002 2001
--------------- --------------- ---------------- ----------------
Income before Cumulative Effect of
Accounting Change $ 226,368 $ 208,929 $ 464,449 $ 385,008
Cumulative effect of accounting change,
net of tax -0- -0- -0- (6,018)
--------------- --------------- ---------------- ----------------
Net Earnings $ 226,368 $ 208,929 $ 464,449 $ 378,990
=============== =============== ================ ================
Weighted Average Shares 154,899,196 158,724,536 155,155,946 158,602,033
Dilutive effect of outstanding
common stock equivalents 2,179,236 2,243,643 2,113,111 2,169,396
--------------- --------------- ---------------- ----------------
Diluted Average Shares Outstanding 157,078,432 160,968,179 157,269,057 160,771,429
=============== =============== ================ ================
Basic Earnings Per Share before
Cumulative Effect of Accounting Change $ 1.46 $ 1.32 $ 2.99 $ 2.43
Cumulative effect of accounting change,
net of tax .00 .00 .00 (.04)
--------------- --------------- ---------------- ----------------
Basic Earnings Per Share $ 1.46 $ 1.32 $ 2.99 $ 2.39
=============== =============== ================ ================
Diluted Earnings Per Share before
Cumulative Effect of Accounting Change $ 1.44 $ 1.30 $ 2.95 $ 2.40
Cumulative effect of accounting change,
net of tax .00 .00 .00 (.04)
--------------- --------------- ---------------- ----------------
Diluted Earnings Per Share $ 1.44 $ 1.30 $ 2.95 $ 2.36
=============== =============== ================ ================
EXHIBIT 99.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Form 10-Q of Golden West Financial
Corporation for the quarter ended June 30, 2002, I, Herbert M. Sandler, Chief
Executive Officer of Golden West Financial Corporation, hereby certify pursuant
to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act
of 2002, that:
1) such Form 10-Q of Golden West Financial Corporation for the quarter
ended June 30, 2002 fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
2) the information contained in such Form 10-Q of Golden West Financial
Corporation for the quarter ended June 30, 2002 fairly presents, in all
material respects, the financial condition and results of operations of
Golden West Financial Corporation.
August 13, 2002 /s/ Herbert M. Sandler
- ------------------------ ------------------------------------------
Date Herbert M. Sandler
Chief Executive Officer
Golden West Financial Corporation
EXHIBIT 99.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Form 10-Q of Golden West Financial
Corporation for the quarter ended June 30, 2002, I, Russell W. Kettell, Chief
Financial Officer of Golden West Financial Corporation, hereby certify pursuant
to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act
of 2002, that:
1) such Form 10-Q of Golden West Financial Corporation for the quarter ended
June 30, 2002 fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2) the information contained in such Form 10-Q of Golden West Financial
Corporation for the quarter ended June 30, 2002 fairly presents, in all
material respects, the financial condition and results of operations of
Golden West Financial Corporation.
August 13, 2002 /s/ Russell W. Kettell
- ------------------------ -----------------------------------------
Date Russell W. Kettell
Chief Financial Officer
Golden West Financial Corporation